Leave the 'plastic' alone

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THERE WAS a time not so long ago when merchants were never asked whether they took "plastic." That was because credit cards used to be made of metal. They also used to be much less common than they are now. As recently as 1970 only about 16 percent of US households used credit cards, and only about 800,000 retail establishments accepted them.

One of those establishments was Mark's Interior Furnishings of Willoughby, Ohio, a store owned by my parents that sold furniture, gifts, and greeting cards.

For several summers I worked at Mark's, helping customers, running errands, and ringing up sales, which were usually paid in cash or by check. Credit-card payments were accepted, but the procedure was tedious. First, the customer's account number had to be checked against the latest bulletin of stolen-card numbers mailed by the credit-card companies. For purchases above a certain amount, the company had to be called for authorization. If the charge was authorized, a confirmation number was provided, which had to be recorded; the card was then run through the manual imprinter (ka-CHUNK), and the charge slip filled out and presented for the customer's signature. Finally the slip's three copies had to be separated, with one carefully saved for eventual deposit in the bank.

A generation later, credit-card transactions have become all but effortless, requiring only a swipe and a signature - increasingly not even the signature. With that convenience has come ubiquity: Today, 73 percent of American households have credit and debit cards, which they use to buy more than $2.4 trillion in goods and services annually at well over 7 million US locations. Since 2003, purchases with "plastic" have outnumbered those with cash or check.

Like many things that are popular and useful, credit cards have their drawbacks. But it would be hard to think of a more unqualified example of a free-market success, one that daily proves its value anew to the millions of consumers and merchants who willingly use cards for payment. So naturally some members of Congress think they need to get in on the act and "fix" the system that has allowed the credit-card industry to thrive.

At issue are "interchange fees," the 2 percent or so of each credit-card transaction that is kept by the bank that issued the card. Interchange fees underwrite the technology and other costs involved in moving funds between and among merchants, customers, banks, and the credit-card associations - primarily Visa and MasterCard - that make such transactions possible.

As card transactions have grown more popular, interchange fees have skyrocketed. They now amount to $35 billion a year, and some retailers want the government to compel Visa and MasterCard to lower them. Legislation sponsored by US Representatives John Conyers, Democrat of Michigan, and Chris Cannon, Republican of Utah, would require the credit-card associations to enter into formal negotiations with retailers; if agreement weren't reached, it would authorize a three-judge panel to unilaterally impose interchange fees.

And why would retailers, who surely wouldn't want government bureaucrats telling them what to charge for coats or computers or Cracker Jack, want Visa and MasterCard to be told what to charge for credit-card services? Because, they claim, the card networks have so much power that they are immune to the market pressures that would be driving interchange fees down in a truly competitive market.

But Visa and MasterCard are hardly monopolies, and merchants are not without other options. No one is forced to accept Visa and MasterCard; retailers are free to take only American Express or Discover, which operate on a different model and don't charge interchange fees. Online vendors have even more choices, such as PayPal or Google Checkout. And, of course, there are the old standbys: cash and checks.

Nor is it true that Visa and MasterCard are impervious to market pressure. The fast-food industry long resisted accepting credit cards, both because they were seen as too time-consuming and because of high fees. "In response," The Wall Street Journal reported in 2004, "the card industry lowered the fees they charge quick-service restaurants and waived the signature requirement."

Credit cards have been a boon for retailers, who know that consumers buy more when they're paying with plastic. Neither they nor their customers will be better off with Big Brother dictating interchange fees. The flourishing credit-card industry manifestly ain't broke. Congress doesn't need to fix it.